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Is aid the answer to poverty?

Posted by: , Posted on: - Categories: Africa, China

A couple of weeks ago I attended a number of fascinating sessions at the International Growth Centre’s Growth Week. One event that particularly stuck in my mind focused on the role China is playing in Africa.

Photo of a man standing on a road
A road builder in the port of Tema, Ghana

At the UN Millennium Development Goals Summit in New York world leaders were discussing how much aid should go from rich countries to poor. It’s an important discussion, but is aid where the answer to poverty lies?

It’s a fact that the revenues that African governments could get from the extraction of their own natural resources will over time vastly exceed any support provided by donors. What matters is how African governments will manage these revenues. This will be one of the most critical determinants of African development over the coming decades.

Enter China, a country whose phenomenal levels of economic growth and enormous population requires access to an ever increasing level of natural resources, something that many African countries have in abundance. China knows this and is increasingly investing in a wide range of African countries in exchange for access rights and extraction agreements.

According to Paul Collier, Academic Director of the International Growth Centre the rise of China’s influence in Africa is the most important and potentially most beneficial thing to happen in the region in the last half century.

In 2000, China’s trade with Africa stood at $10 billion; by 2005 it had leapt to $40 billion. In 2008 it was $108 billion. Through the provision of much needed infrastructure, China is helping to unlock the potential of many African countries. China often provides this infrastructure cheaply and much more quickly that than the government could on its own. It has also enhanced competition in the resource extraction process, an arena that was previously dominated by a very small number of companies.

DFID’s work is directly complementary to China's role as a provider of infrastructure. Alongside good roads, bridges and electricity you need efficient regulation and business services – DFID has been helping African governments improve these for many years. For example, it is now easier to start a business in Rwanda than it is Switzerland, and in Mozambique we helped reform customs procedures so that goods now clear customs 40 times faster - attracting new investments and driving growth. For more information and other examples take a look at the work of one of DFID’s partner the ICF.

In many African countries China has been a constructive force. However,  China is not an unambiguous force for good. Human rights groups have been critical of the extent to which some of its banks' and firms' demand for natural resources has led them to signing deals with unrecognised and shaky regimes.

There are also other risks. Tensions have begun to surface between local populations and immigrants as Chinese immigration rises. Unmanaged migration can create unrest, political strife and, as has happened in the past in Africa, this could fuel anti-foreign feelings which could potentially disrupt the very development Africa needs.

Image of Paul Collier lecturing on resource extraction and growth at a recent DFID event. Click to hear the podcast
Paul Collier lectures on resource extraction and growth at a DFID event. Click the image to hear the podcast. Photo: Simon Davis / DFID

How best to minimise these limitations and maximise the benefits? Paul Collier believes that the creation of auctions in which firms compete for access to minerals in terms of resources as opposed to China’s direct deals exchanging minerals for infrastructure would enhance the transparency of the bidding process, increase competition and drive down prices.

This may sound fine in theory, but nothing is stopping Western firms from operating in such a manner at the moment. Collier argues that this has been held back by a paucity of geological information regarding the location and extent of Africa’s mineral resources.

Did you know OECD countries, per square metre, have £300,000 worth of known sub-soil assets but in contrast Africa has only £60,000? Is that because Africa is a resource poor continent? Unlikely – the reality is that the geological surveys needed to determine the true value of land in Africa have not been carried out. Africa trades blind in this respect – selling off land without knowing the true worth of its assets.

This leaves a poor continent vulnerable and given the importance of resource extraction to Africa’s development Collier believes that donors should be willing to fund geological surveys and make these public.

As a taxpayer, or someone interested in development, how would you feel about public money being used to fund geological surveys in developing countries? Given the low level of information about Africa’s geological potential, this support could play a key role in unlocking Africa’s potential - but of course would also drive a scramble for minerals that might have unintended consequences.

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  1. Comment by Subir Ghosh posted on

    No, Paul. Aid in itself is not an answer.

    If you look at the issue of development from an individual's perspective (i.e. the one at the receiving end), your ideas might change.

    Suppose I am a poor person in rural India and I want cross this poverty line, then there are so many things I would want to do. But my path to development is full of hurdles (from the corrupt village postmaster onwards and above). These hurdles are either institutions or are individuals who have been institutionalised. As long as these hurdles don't go away, I will have to remain poor.

    Poverty is a political problem. It is a human rights issue. Aid can help only if it is an enabler. If you give me those ten bucks I need to file an RTI, that would be great. (assuming I know about RTI). Otherwise, aid in itself doesn't work... it is too piecemeal a proposition.

    No, I am not against the concept of aid. Especially humanitarian aid in times of disaster. But aid cannot and should not be given to spoonfeed anyone. Do away with the hurdles I speak of, and I will be on my way out of poverty. Then is when I might need some help. To probably set up my poultry farm. But if you give me the money now without removing those bottlenecks, you will be turning a blind eye to the problem. And in effect, will only be institutionalising and perpetuating poverty.

  2. Comment by jagat shah posted on

    out of the 7 forms of capital; the first 4 i.e. cultural, human, knowledge & institutional capital is the key to poverty alleviation......not so much of the other 3 i.e. financial, infrastructure & natural endowments......

  3. Comment by jagat shah posted on

    public money being used to fund geological surveys in developing countries means access of KNOWLEDGE to African countries. It will certainly help.....

  4. Comment by Alvar Bramble posted on

    I agree that it is important to manage resources, especially for the construction and maintenance of infrastructure.

    For that to occur, it is also important to have accountability -the more accountability, the richer the country can become.

    Research I have been carrying out indicates that best practice for citizens to exact accountability from their elected officials is constituent-legislator communication.

  5. Comment by Iris Krebber posted on

    Aid as an enabler, DFID providing complementary support - what comes to mind? Citizen demand creation, empowerment from the bottom up, so that human capital can put their governments on the spot to provide the services that they are supposed to provide, not aid.

    On a different note: It is not widely known that with its aid China is exporting millions of marriageable young men to go, work and stay - not always welcomed by African governments and their citizens.

  6. Comment by Stephen Kiingi posted on

    The fact that China is willing to provide valuable infrastructure in return for natural resources in Africa, helps to reduce the transaction costs in some rural areas. A number of private companies are often risk averse and do not want to assume the inherent risks. Carrying out these surveys on behalf of African governments would provide these companies with a leg up; resources would be extracted but the accompanying benefits might line the pockets of a few but in the end not benefit the average African.

  7. Comment by Sam posted on

    I echo Subir Ghosh's ideas on aid.

    It is extremely important in circumstances when people are living a sub standard life for lack of basic needs like food, shelter and health services, in any part of the world.

    However, the problem with most poverty reduction strategies is that they view it as a techno-managerial exercise. A development model based largely on aid is vulnerable to shocks such as the economic crisis that we are facing at the moment. The progress made towards achieving millennium development goals was stymied across the world and even pushed back. More aid will now be needed to get around a billion people out of poverty and its crucial but unless institutional changes take place within developing countries, none of that progress can be sustained.

    The current development model targets the effects of poverty and hardly the causes of it. Unequal global power structures and equations are at the root of poverty ( your case in point about mineral extraction in Africa is a brilliant example of it) but these issues are buried under the dominant discourse of targeted poverty reduction programs.

    Aid in itself is hardly going to change anything. We need a better integrated approach and we need to talk about the elephant in the room - corruption, not to play a blame game but to find out why does it exist and what can done to tackle it.

  8. Comment by Marie Staunton posted on

    Ring-fencing overseas aid is not only the right think to do it’s the smart thing to do. In an age of economic austerity, it’s right to ask why we spend on aid and the difference it makes.

    Take aid investment in education. It’s the right thing to do because while people in the UK have benefited from education, uneducated girls across the developing world have little chance of breaking out of poverty for generations to come.

    It’s the smart think to do because our money educates 4.8million children overseas at 2.5% of the cost of educating children here in the UK – and studies have shown that you get quite a good return on your investment. Providing secondary school education for girls in Uganda, for example, would boost that country’s annual gross national income by £5.4 billion.

    Such returns are good for business and what is good for business can be good for the world. It has been estimated that consumer spending power in emerging economies could increase from $4 trillion to more than $9 trillion – nearly the current spending power of Western Europe.

    Economies in sub-Saharan Africa have grown 54 per cent in the last eight years and some are growing at 11 per cent a year. That means opportunity for UK business as, through aid, we understand how these economies work and how they trade. In short, there’s self-interest to aid.

  9. Comment by Henry Rwamugema posted on

    I fully agree and convinced that African nations and enterprises in Africa needs aid in order to develop the continent.

    anything we need to develop the African resources needs huge amount of money ie technology, human capital, industries, export promotion programmme, branding of our products, and existence in foreign easy job to stand firm and still the answer and we need more aid than yesterday !

  10. Comment by Matt posted on

    While I believe that AID is very good for the peopel of a third world nation, like Africa, for instance, I am weary of the fact that much of the AID goes to the gangs and criminal overlords, and even the dictators of these countries and the people who are in dire need of the food and medicine are forced to take the leftover scraps. Also, I don't believe any nations that are exercising acts of terrorism should receive AID of any kind. Yes, I know most of the citizens of such a country are not the ones committing the acts of terrorism but, giving billions of dollars to a nation that is going to use it to harm your own citizens is just foolish.